In this video Michael Krigsman and Vala Afshar of CxOTalk interview Alexander Osterwalder, co-founder of Strategyzer and lead author of Business Model Generation and Value Proposition Design. Alex shares the thinking behind the two books and the accompanying tools, the Business Model Canvas and Value Proposition Canvas, as well as the software that makes the process living and social.
0:00 - 3:48 - Intro
- At Strategyzer, we’re passionate about business tools.
- We believe that in the future strategy and innovation will be actual business jobs, just like accounting or finance.
- Business strategists and innovators should be trained to operate more like surgeons, using the proper precision tools to perform the most minor outpatient procedure to the most complicated of open heart surgeries, except we'll do it with business tools on our own businesses.
3:48 - 7:23 - What's a business model?
- The Business Model Canvas is the basis of our first book, Business Model Generation and allows you to describe your organizations business model in nine building blocks.
- Front Stage: Value Proposition, Customer Segments, Channels, Customer Relationships, and Revenue Streams
- Back Stage: Key Resources, Key Activities, Key Partners, and Cost Structure
- The Business Model Canvas describes the story of your business model and makes explicit how your organization creates, delivers, and captures value.
- The Canvas helps companies visualize their business model and creates a shared language for the entire organization.
- In business today, we focus more on products and technology then we do about our expiring business model.
7:23 - 10:45 - What was the thinking behind producing such a visual book?
- The Business Model Generation book has sold nearly one million copies and we made it the way we did (visually) for two reasons:
- First to differentiate it from the other 11,000 business books published each year on top of the 250,000 business books that already exist.
- Second, because of the fact that visualization helps us to simplify and make sense of complex things, which was even more important to us than just differentiating the book.
- We believe that visual thinking is critical for business and is the way that businesses will work in the future.
- An additional differentiator and bonus of the book was the visual canvas, a practical tool that helps you apply what you learned conceptually to your real work come Monday.
10:45 - 14:38 - How do you suggest people take advantage of this simple idea?
- Business models is a broad topic that ranges from improving existing business models to inventing new ones, so the way you use the method and tool depends on the context.
- In the next business meeting you have regarding the company's business model or strategy, have it around a Business Model Canvas to sketch it out and make it tangible. You may think everybody knows what the company's business model is, but you'll be astonished to find that it is not the case.
- If you're in a large company, because business models are expiring faster than ever, you need to create a playground to start thinking about new business models and ways to reinvent yourself.
14:38 - 17:10 - What's the most common mistake that you see leaders make with business models?
- Companies today are applying the same logic of their execution machine (the existing known business model) to the search for new business models.
- Spending time creating a business plan for a new business that doesn't exist yet is a waste of time.
17:10 - 21:14 - How does Steve Blank's ideas about "getting out of the building" apply to the business model?
- We get along with Steve very well and you can look at the Business Model Canvas as the business plan of the 21st Century.
- The Canvas connects back to Steve Blank's Customer Development and customer research in that you want to be able to sketch out a Business Model Canvas, and throw it away a minute later because you don't know if it's going to work yet.
- What you want to do is sketch out a canvas very quickly, and then "get out of the building" to test it.
- Start with cheap tests and simple interviews and increase the level of spending on more advanced experiments and prototypes as your evidence and knowledge increases.
- Once you have enough evidence and knowledge from the market, you start moving into execution mode.
- The problem in most large companies is that they remunerate and even incentivize the writing of business plans instead of incentivizing evidence based business decisions.
- What you want to do is prototype your Business Model Canvas iteratively until you have evidence to say what will work and what won't.
21:14 - 23:55 - So when you finally move forward you want it be evidence based?
- Yes, and as an example, let's say you're working on a med-tech company. You can get together with potential customers and have interviews and conversation till you are able to pitch them a potential solution. Then you can give them a trackable link where they can go to get more information. If they don't visit that link for more information, it's likely an indicator that you aren't addressing a big enough problem. Now, that's not to say that this is proof that you are wrong, but it's already a better set of evidence that something is wrong with your idea.
- You should do many of these types of tests before you ever start spending money on building something.
- The hard thing is that this is not a linear process, but an iterative process of advancing and regressing until you converge on the right path.
23:55 - 28:50 - So does the Business Model Canvas simulate your hypothesis and determine where you need to make the course correction to achieve the desired result?
- Yes, and there are two things to think about here. First, to get from your idea to a specific goal, you need to design several potential paths. Doing this allows you to crash test the design before even testing in the market.
- Second, after you've crash tested the design, then you can get into Customer Development and Lean Startup.
- You go back and forth between designing your business model and searching/testing in the market.
- We believe that we can use a computer aided design process, just like architects, to help strategists and innovators to explore this messy space.
28:50 - 35:32 - Can you tell us more about business model change inside large organizations?
- The reason we don't have tools like the Business Model Canvas already, is because we don't teach these types of things in business school.
- Until recently, the idea of rethinking business models didn't matter because business models didn't expire as quickly as they do now. Further, the big success cases sort of happened in a very ad-hoc way, without the use of tools.
- Introducing tools allows us to leverage what we are already doing in a much better way.
- The Business Model Canvas has taken off in recent years because now more than ever big organizations are struggling with innovating at the business model level, and not just at the product level.
- Even those who have succeeded without using tools like the Business Model Canvas and Customer Development feel that if they had tools they would have succeeded sooner and failed a lot less along the way.
- The task of business modeling is more urgent today because business models expire sooner, and now we have the tools and we don't need to accept such large failures anymore.
- The big failures we hear about are not because the people running them are stupid, but because they apply the logic of execution to the search for new business models.
- Inventing the future is not about execution, it's about the search.
35:32 - 36:55 - The Chief Corporate Entrepreneur
- In big companies today, besides the Chief Executive (Execution) Officer, at the same level just under the board, we need to have a second job title, the Chief Corporate Entrepreneur.
- The Chief Corporate Entrepreneur invents the future of the company while the Chief Executive Officer runs the existing business. (Tweet This)
- It needs to be a partnership between the person that invents the future and the person that finances the future.
- Today, CEO's feel like the other guys are "innovation pirates", but what board members need to insist on is having Chief Corporate Entrepreneurs at the same level as Chief Executive Officers.
36:55 - 39:33 - Are there exceptions to that?
- Apple and Amazon are great examples of continuous business model innovators.
- Apple is always thought of as a great product innovation company, but what people don't realize is that they were continuously innovating their business models, purposefully cannibalizing their own products, and proactively reinventing themselves.
- The question is not when am I going to start business model innovation, it's where is business model innovation happening in my company today.
- If you look at Amazon and analyze their e-commerce, their infrastructure business, and their web services, you realize that they all rely on the backstage. They are diversifying in higher margin businesses that build upon the business model that they are already operating.
- It's not a surprise that companies run by entrepreneurs are able to reinvent themselves.
39:33 - 45:45 - Why did you write the new book, Value Proposition Design, and what's the connection to business models?
- Going back to the analogy of the surgeon, we need to use a series of tools for business success.
- The Business Model Canvas helps you describe how you're creating value for your company and is the blueprint of your strategy. It shouldn't be used to describe how you create value for customers.
- We created the Value Proposition Canvas to help people to visualize how their products and services are creating value for their customers.
- Most people, and even product managers, can not articulate concretely the value that their products and services create for customers.
- We created this tool to allow you to zoom into the value proposition and customer segment boxes of the Business Model Canvas.
- Using this canvas you can make your customer research more actionable.
- Once you understand your customer's jobs, pains, and gains, you can map the way that your products and services kill pains and create gains for customers.
- This is important because it gives companies an explicit way to articulate how they create value for customers from the product teams through the marketing teams to the board.
- We wanted to create a tool that allows you to work with something tangible and allow you to manipulate the value proposition the same way we did with business models.
- In the future there will be other tools for other business problems and in 5-10 years, this type of thing will be the new normal.
45:45 - 48:05 - Where does this type of capability exist in an enterprise?
- It will become an operational tool and a social tool that everybody can link into. It will be like the SAP of strategy.
- Everybody in a company will have to understand the business model and value propositions of an organization in order to keep everybody moving in the same direction.
- It's an enterprise system. Just like we have enterprise resource planning on the operational level, we are going have something like strategic resource planning at the strategic level.
- These types of tools will replace the broken strategic planning process with a living, active tool that will allow everybody to know how the strategy is evolving, where the improvement projects are contributing to the business model, and what the new business models are that are being explored.
48:05 - 51:39 - Closing
- If large companies want to survive, they are going to have to drastically change.
- We are going to see a big wave of management innovation.
- Big companies are going to be disrupted and disappear and their disruptors will be disrupted if they don't start understanding that they need to continuously reinvent themselves.
- Steve Blank says we may be in the age of the disposable company that gets big and then disappears.
- Get the new book, Value Proposition Design by pre-ordering it now. It will be coming out on October 20th.